What is Stock Valuation?
Stock valuation is the process of determining the fair value of a company's shares using fundamental metrics like earnings, revenue, cash flow, and growth projections.
Stock Valuation Explained
Valuation helps investors determine if a stock is overpriced, underpriced, or fairly valued. Common metrics include P/E ratio, PEG ratio (P/E relative to growth), price-to-book, and discounted cash flow analysis. No single metric tells the whole story — the best approach uses multiple valuation methods and compares them to industry peers and historical ranges.
Real-World Example
Company A has a P/E of 15, PEG of 0.8 (cheap for its growth), and price-to-book of 1.2. Company B in the same industry has a P/E of 30, PEG of 2.5, and price-to-book of 4.0. By multiple valuation measures, Company A appears significantly undervalued compared to Company B.
Related Terms
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